Welcome back! I hope that everyone’s spring semester is off to a great start. We wrapped up a great fall semester and are now back and ready to make an even greater impact in 2015. This year we kick things off with a recent study by Dr. Nels Popp, who has recently completed a study where he has developed a model to predict the financial value for the naming rights of college sport stadia.
Why did you do the study?
Would UNC athletics ever consider selling corporate naming rights to the Dean E. Smith Center, home of Carolina’s storied men’s basketball program. To many Tar Heel faithful, the thought watching their favorite team in the Lenovo Dome or Strata Solar Arena is hard to fathom. In fact, past academic research has shown college sports fans have expressed distaste for corporate naming rights of college athletic venues. The reality, however, is many big time NCAA Division I college athletics departments are faced with rapidly increasing expenses related to facility construction, coaching salaries, and now new line items such as unlimited student-athlete meals and full costs of tuition stipends. As administrators look for new revenue streams to cover these costs, more are considering the sale of corporate naming rights to their sport facilities.
Corporate naming rights for professional sport stadia are nothing new to sports fans. Many high profile professional sports teams play in such facilities as Brooklyn’s Barclays Center, Los Angeles’ Staples Center, and Charlotte’s Time Warner Cable Arena. In the college space, relatively few sports facilities have corporate monikers, although we have noticed a slight uptick in this trend. For example, new football stadiums at the Universities of Minnesota (TCF Bank), Houston (Texas Dow Employees Credit Union), and North Texas (Apogee) all sport the names of business firms. While observing this trend, we also noticed an interesting tendency; some athletic departments and facility management companies looking to fund construction and renovation projects seemed to over-value the worth of their facilities. For example, a few years ago, the Louisville Arena Task Force was seeking funding for a new arena soon to be home to the University of Louisville Cardinals men’s basketball team. A story in the Louisville Courier-Journal suggested the building could command $7 million a year in naming rights, despite the fact the most lucrative collegiate naming rights deal up to that point was the Save Mart Center at Fresno State, an agreement worth $2 million annually. Shortly thereafter, the University of Illinois announced they were seeking a naming rights partner to help fund the renovation of their on-campus basketball arena, in hopes of landing $3 million per year, despite the school’s location in the relatively small community of Champaign-Urbana. Interestingly, athletic administrators at Illinois did strike a substantial deal with State Farm Insurance for $2 million per year to rename the former Assembly Hall. Meanwhile, the Louisville Arena Task Force ultimately signed a deal with Yum! Brands (parent company of fast-food chains KFC, Taco Bell, and Pizza Hut, among others) valued at roughly $1.35 million per annum.
This led us to wonder, what really drives the values of these deals? While the market for professional sport stadia seems to follow a relatively logical progression, with the largest deals happening in the largest markets (the top 10 annual pro deals are for stadia in L.A., New York (3), Boston, San Francisco, Houston, Atlanta, and Phoenix) and with the newest facilities, the same was not necessarily true among college facilities. How were deals struck at North Texas (football), Creighton (basketball), and Boise State (football) worth far more annually than sponsorship deals at Ohio State (basketball), Louisville (football), and Cincinnati (basketball)? The more we thought about this issue, the more we believe the market for collegiate sport venue naming rights was quite inefficient.
What did you do and what did you find?
Our first research question, then, was to try to determine what the landscape really looked like in this area. Once we did that, we could then begin to analyze what factors seemed to drive the value of those deals. We wanted to know was it the size of the market, the history or success of the teams, or the age of the venues that impacted rights’ values most. Finally, we believed if we could determine the factors most impacting the value of naming rights deals, we could ultimately develop a regression model which could help predict future values of naming rights. Such an equation would be very useful to athletic administrators seeking naming rights deals.
When we began our research, no source provided the details of every collegiate naming rights deal. In fact, over the course of our study, several new deals were signed. Ultimately, we uncovered 58 collegiate naming rights deals for which details of the agreement were publicly available. However, 12 of those deals were signed in perpetuity, or for the length of the building’s existence. For example, Syracuse signed an agreement with the Carrier Corporation in 1980 for $2.75 million which allows the air-conditioner manufacturer to have its name on the school’s basketball and football facility for as long as the Orange compete in that building.
Once we identified these 46 facilities, we then collected data about them. Through previous research, we knew facility age, local population, facility capacity, and type of primary tenant all significantly predicted naming rights values. Thus we collected those variables, along with others such as household income, winning percentage of teams, type of Division I affiliation (FBS, FCS, non-football), school enrollment, and presence of a major league sports team nearby. Ultimately we investigated the influence of 12 factors on the outcome variable of naming rights value.
After trying a couple of different models, we found our most explanatory equation used six variables, predicting nearly 55% of the variance in naming rights values. The four variables providing significant predictive power were: (a) facility type (football or basketball); (b) average attendance; (c) presence of multiple tenants in the facility; and (d) household income. Interestingly to us, indoor basketball arenas generally commanded more in naming rights than did football stadiums. The attendance variable, meanwhile, was a relatively effective way to measure team history and tradition—schools with the best histories and tradition typically draw the most attendees—so it made sense that it had a positive correlation with value. Perhaps our most significant findings were that population did not seem to impact naming rights values, but household income did. It appears the college sports landscape, which has much of its presence in smaller metro settings (Corvallis, OR; Lubbock, TX; Grand Forks, ND; etc.) is different than the professional sports setting, where stadia located in the largest metro regions command the most in rights fees.
What is the impact of these findings?
The target audience for this study is college athletic administrators who negotiate these naming rights deals. We believe our study can be of great assistance to them as they prepare naming rights proposals. Our regression equation allows them to substitute the variables surrounding their facilities to get an idea of what the market suggests they should command in negotiations. For example, we recently read Arizona State University is considering selling naming rights to their football stadium, currently named Sun Devil Stadium. Based on their past attendance, household income in the Tempe region, team winning percentage, and other key variables, we believe naming rights should be valued at around $1.67 million per year.
While the public may not benefit directly from stadium naming rights deals, college sports fans do benefit indirectly. Additional dollars brought in from corporate naming rights allows athletic departments to meet more of their budget concerns and often helps in funding pursuits aimed at increasing on-field competitiveness. In many cases, stadium naming rights deals in college athletics have enabled athletic departments to complete facility building projects and renovations, which typically include improved fan amenities.